2017 Annual Performance Report – The Deep Value ETF Accumulator

Although I began building this strategy and the portfolios for the Deep Value ETF Accumulator in 2015, 2017 is this first year I can bring to you an annual report of how the portfolio is performing. You could say 2015 was the Genesis year for the Deep Value ETF Accumulator and 2016 was the implementation year.

While I do not expect to beat the S&P 500 year in and year out, I do think it is a worthwhile benchmark. I’d love to say we beat it last year, but I cannot. Please note, we are building a portfolio that encompasses equities from the entire world, not just U.S. Large Cap Blend equities. As with any “Value” portfolio, one should fully expect it to lag in a year when Large Cap Growth equities dominated.

Caveats & Excuses

Our overall performance was 17.36%. While that is a respectable return on investment, the performance of IRA #3 was a certain drag on our total returns. Here are some reasons for this inferior performance:

• In 2017 I was attempting to manage this Deep Value ETF Portfolio in a 401k that only allowed me to call in orders once a month. This sort of portfolio needs to be managed about once a week. This doesn’t require much time, but orders need to be made when orders need to be made.
• In 2017 I was laid off from the job that was attached to this 401k. I transferred those funds to what is now called IRA #3 in September 2017
• That 401k which is now IRA #3 represent nearly 50% of our holdings.
• Cash is a position and cash is a drag. I have learned the hard way that while cash is a wonderful thing to have when equities go ‘on sale’, a year like 2017 proved that it is far better to have as much capital working for you as possible. We have since endeavored to ensure we are always 90% to 99% invested.
• I’ve also learned that I tend to trim profits a bit early. We will continue to trim profits when it is prudent, but those profit taking thresholds will be set to at least 1% of the entirety of the combined accounts. (example: $100,000 account balance, a single position would need to have at least a $1k profit before trimming any profits)

So, what does the Deep Value ETF Portfolio look like currently? I did not take a snap shot of our holdings on December 31, 2017, so I am displaying our current holdings as of January 29, 2018:

• Energy – weight 22.60%, we’ve begun to trim profits in this sector and will continue to trim if it continues to increase in value, we still own both PXI & XLE, we intend to divest from one of these funds soon (I’m leaning toward keeping XLE due to the dividend yield)
• REITs – weight 18.62%, we’ve been aggressively accumulating REZ, we will stop accumulating this when it stops going down in value
• Mexico – weight 16.58%, we were able to trim some profits from EWW in 2017, but its been languishing since September, we’re enjoying the dividends while awaiting further capital appreciation
• Utilities – weight 7.46%, we are aggressively seeking to grow this position larger, we will continue to accumulate RYU if the price stays low
• Biotech – FBT has been our most profitable holding at +57%
• South Africa – this single country ETF is beginning to show some weakness, we will reinitiate accumulation of EZA if it continues to fall in price
• Small Cap Blend – we have a 5% trailing stop in on IJR, when it sells we will begin to accumulate SLY
• NTIAX is the only fund we hold in our new company’s 401k – we will not be managing this

Well, that’s all I have for you on the Deep Value ETF Accumulator’s performance for 2017. I will report again in July 2018 with the H1 performance report.

Interesting. I have been wondering how you have been doing with your strategy and wanted to ask, but didn’t want to be rude. I have benefited greatly from your research, but put a slightly different spin on it for my own investing strategy. I look to invest in your best of sector funds that are on your list, but I stay in the funds long term. My real interest is in finding good entry points for these funds. So far I have used your strategy to invest in (RHS in at 122), (ITA in at 183) and (FBT in at 102). I have kept all of what I bought and don’t see myself selling anytime soon. Of some of the funds that are on your list that I discovered through my own research, I am in QQQ and FDN. I only wish I would have found you a little earlier. I have specifically stayed out of a few of your recommendation mostly because I know so little about the sector that I prefer just sticking with what I know. I so want to invest in REZ right now, but honestly it is so hard to move out of anything else because just about everything I have is doing well. Also, I am a dollar cost average investor with monthly deposits, so it makes it hard to invest in things that aren’t commission free through my brokerage. I look forward to your future recommendations and if I can get REZ a little lower, I will jump. Good luck, you provide a great service!

Hi Duane
Good to hear from you again.
No need to fear asking me any questions.
I recently had someone on StockTwits ask what my holdings were.
Thanks to Morningstar, where I watch my portfolios, it was an easy process to show him what our holdings were.
I’m delighted to hear about your success.
I agree with your decision to hold long term and believe that is a very wise choice.
We too are holding long term and never selling our base shares, but we do trim profits occasionally.
I enjoy the buying and selling process a little too much, therefore I’ve instituted some self-imposed rules to help reduce my selling.
I believe, over long periods of time, the long term holder will be much more successful.
I wish I discovered this method of ETF accumulation a long time ago too.
I wasted a lot of time & money getting to this point, but it was a valuable education.
I’ve heard from more than one rich person that we should invest in what we know, so, very prudent to stay out of the funds you don’t want to own long term.
I cannot and will not predict the future for REITs, but I think now may be the time to strike on this.
Generally speaking, REIT funds pay out about a 4% dividend (about 2x an S&P 500 fund).
So, for the REIT sector to be down 15% is pretty significant.
Commissions are significant, but they only play a small part in my decision to buy or sell.
We generally buy $1200 or $2400 lots, so that’s roughly 0.60% to 0.30% up front costs.
Many of these funds can swing this much in one day.
If you go to ETFdb.com screener you can see which REIT funds trade commission free at different brokers.
Try this link, it should take you directly there: http://etfdb.com/screener/#page=1&asset_class=real%20estate&tab=expenses
If that doesn’t work try this one and check the “real estate” box on the left, then go up and select “expenses” and you’ll see a column named “commission free”: http://etfdb.com/screener/
Thank you for taking time to write me and tell me about you successes.
I wish you much more success than you’ve already found.
Micah